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Indonesia's Crippling Mineral Export Tax To Stay

by Mary Swire,, Hong Kong

14 March 2014

Despite a stop on exports and reports of reduced production by the country's largest mining companies, the Indonesian Government is insisting that it will maintain its export tax on mineral concentrates.

Within its new mining tax structure, the Government has prohibited the export of raw mineral ores, which will particularly affect the nickel and bauxite industries. Other minerals that are presently exported in concentrate form, including copper, iron ore, zinc, lead, manganese and titanium, have been subject to specific export tax rates since January 12 this year.

Under the new law, those rates will be increased gradually each year until January 12, 2017, when the export of concentrates will also have to stop. An immediate 25 percent export tax has been imposed on Indonesian copper concentrates, increasing to 35 percent on January 1, 2015, and then up to a maximum of 60 percent by July 31, 2016.

The imposition of the export tax from January 12 this year has mainly affected Newmont Mining Corp and Freeport McMoRan Copper and Gold Inc, which together produce 97 percent of Indonesia's copper concentrate. They have expressed their direct opposition to the new tax, declaring that it contravenes their mining contracts with the Government, and have stopped exports.

The Government has always said that the increased rates were not being imposed to increase government revenues, but to encourage the mining companies to build refineries and smelters, and thereby improve the value-added by the mining sector in Indonesia and reduce its dependence on mineral ore reserves and cheap labor.

There had been previous indications that the Government would be prepared to cancel or lower the rate of export tax on mineral concentrates for those firms that can provide "physical proof," or a more definite commitment, that they are going ahead and have contracted for the building of smelting capacity in the country.

However, in latest announcements, government ministers have emphasized that the export tax will be maintained, and have denied any suggestion that it would be changed, even though the mining changes resulted in a turnaround for Indonesia into having a trade deficit in January 2014, after surpluses in previous months.

In fact, they are reported to have gone as far as to say that, if a mining company does not demonstrate a willingness to provide future smelting capacity, it should not be granted an export permit at all.

TAGS: tax | mining | export duty | law | tax rates | Indonesia | trade | Other

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